U.S. Oil Exports Spike To Record Levels

Friday October 6, 2016

In the latest edition of the Numbers Report, we'll take a look at some of the most interesting figures put out this week in the energy sector. Each week we'll dig into some data and provide a bit of explanation on what drives the numbers.

Let's take a look.

1. OPEC compliance on the upswing

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- OPEC has struggled to get a couple of its members to fully comply with the promised output reductions, with Iraq as a main outlier. For months Saudi Arabia cut deeper than required to make up for rising production in Libya and Nigeria.
- But compliance hit its highest point to date in August. Iraq lowered its output and production growth stalled in Libya and Nigeria.
- Even better, the non-OPEC coalition boosted its compliance as well, with Russia cutting more than required. Non-OPEC compliance exceeded 100 percent, and exceeded that of OPEC for the first time.
- The improved compliance coincided with a tightening of the oil market, helping to push up oil prices (briefly) to their highest point in two years.
- New data from Reuters suggests the high level of compliance may have slipped in September, with OPEC adding 50,000 bpd from the prior month.

2. Trump wants to prop up coal and nuclear

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- The U.S. DOE is proposing the most radical change to electricity market governing in a long time, seeking to boost the returns for coal and nuclear power plants because they ensure grid reliability.
- The rule change would favor electricity sources that can store 90 days' worth of fuel on site, which essentially means only coal and nuclear.
- The move is highly controversial and ignores the fact that market forces are killing coal and nuclear.
- FirstEnergy Corp. (NYSE: FE), an Ohio utility with struggling coal and nuclear plants near bankruptcy, saw its share price jump on the news. First Energy's stock is down by more than a third since 2013, but is up nearly 5 percent since last week.

3. New emerging oil play in Canada

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- It is not too often that a new oil play emerges, but there is evidence that such a thing is occurring right now near Alberta's oil sands.
- There is something of a land rush underway for acreage southwest of Fort McMurray in Alberta, traditionally an area for large-scale oil sands operations.
- But there is excitement precisely because the oil drilling is conventional, and can be conducted at low cost. Bloomberg reports that oil production costs are as low as C$10 (USD$8) per barrel.
- Data so far is hard to come by, particularly since many companies in the area are privately held. But Bloomberg reported that a company named Stomp Energy Ltd. purchased acreage for a whopping C$10.15 million per hectare, the most expensive land deal in Alberta since 2011.

4. Shell cuts costs

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- Royal Dutch Shell (NYSE: RDS.A) is now generating more cash with oil prices in the $50s per barrel than it was back when oil was trading north of $100 per barrel, according to the FT.
- There are several reasons for this. Shell cut capex by $20 billion, reducing operating costs by $10 billion, and is producing a lot more natural gas after its $50 billion acquisition of BG Group.
- By the end of the year, Shell's net debt will be $17 billion lower than its peak.
- The big question is whether or not Shell should accelerate spending on cleaner forms of energy - the company said it will spend $1 billion on "new energy" by 2020 - or step up spending on new oil and gas reserves. Analysts in favor of the latter point to Shell's declining reserves, but Shell's CEO rejects this notion. 

5. U.S. weekly net oil imports plunge as exports surge

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- For the week ending on September 29, the most recent week for which data is available, U.S. net oil imports plunged to just 5.230 million barrels per day, the lowest weekly total in EIA record keeping dating back to 2001.
- Large movements in the weekly net import figures for the U.S. are typical, so there is a lot of statistical noise to take into account.
- The record-setting decline in net imports is likely due to the lingering effects of Hurricane Harvey. Crude oil built up because refineries were offline and export terminals faced disruptions.
- In addition to the physical barrels backed up along the Gulf Coast, market forces likely sparked an export boom when everything came back online.
- The large disparity between Brent and WTI - exceeding $6 per barrel - made U.S. crude incredibly competitive. Buyers from around the world scooped up American crude.
- Crude exports jumped from 0.928 mb/d for the week ending on Sept. 15, to 1.491 mb/d on Sept. 21, to 1.984 on Sept. 29 - a record high.

6. EVs to eat oil demand

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- There is no shortage of forecasts for electric vehicles, but there is a growing number of them warning about oil demand destruction from the rapid adoption of EVs.
- Barclays is the latest to add its voice, predicting the oil market will lose 9 mb/d of oil demand by 2040, assuming EVs capture one-third of the auto market.
- The hits keep coming. GM (NYSE: GM) announced plans this week to unveil 2 new EVs within the next 18 months, along with 20 new EV models by 2023.
- Erasing 9 mb/d of oil demand would go a long way to keep oil prices permanently low.

7. Global clean energy investment hits $66.9 billion in Q3

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- New data from Bloomberg New Energy Finance puts global clean energy investment at $66.9 billion in the third quarter, up from $64.9 billion in the second quarter and up sharply from the $47.8 billion a year earlier.
- That puts 2017 on track to beat 2016 in terms of investment dollars, but behind the record-setting year of 2015.
- BNEF said one standout project in the third quarter was the $4.5 billion investment by American Electric Power (NYSE: AEP) in a 2GW wind project in the Oklahoma Panhandle. The 800-turbine project will come online in 2020.
- At the country level, China attracted the most clean energy investment at $23.8 billion, while the U.S. came in second with $14.8 billion.

That's it for this week's Numbers Report. Thanks for reading, and we'll see you next week.